UN report calls for control of 'financialization' of commodities

Increasing activity in financial markets has led to a rise in commodity price volatility for oil futures and other energy commodities, according to a new report from the United Nations Conference on Trade and Development.

The report, entitled "Don't Blame the Physical Markets," stresses the changes that have come as more investors have begun trading in commodities.

The authors note that higher volumes have led to a rise in high-frequency trading in the commodities sector, a trend that has been linked to some of the most dramatic spikes or drops in oil and gas prices over the past few years.

In response, the report suggests that market regulators take on a role similar to central banks in regards to commodities, purchasing or selling futures contracts at certain prices to encourage greater stability in prices.

"The idea would be for a central bank or a regulator to intervene like with a currency market," David Bicchetti, associate economic officer at UNCTAD, told Reuters. "Once we re-regulate markets we will come back to a situation where consumers and producers dominate price discovery and we will be a lot closer to fundamentals."

Reuters reports that regulators like the Commodity Futures Trading Commission recently began an investigation into Monday's dramatic drop in oil prices, which so far seems to be attributed to a single large sale and its impact on high-frequency trading.

PennEnergy's Research area tracks oil prices worldwide each month.

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